Th3.1: Why Firms Grow Whilst Others Remain Small

Question 1

What three reasons do firms grow for?

Answer 1

to make more money, gain monopoly power and for greater security

Question 2

By growing, a firm will be able to experience…

Answer 2

economies of scale which helps them to decrease their costs of production
be able to sell more goods and make more revenue
together helping make a larger profit - high motivation for firms

Question 3

A larger firm will hold a greater share of their market, giving them the ability to…

Answer 3

influence prices and restrict the ability of other firms to enter the market, helping them to make profits in the long run

Question 4

What does monopoly power often mean?

Answer 4

firms have monopsony power and so will be able to reduce their costs by driving down the prices of their raw materials

Question 5

A larger firm will have more security as they will be able to…

Answer 5

build up assets and cash which can be used in financial difficulties

Question 6

Security - moreover they are more likely to sell a…

Answer 6

bigger range of goods in more than one local/national market and so they will be less affected by changes to individual products or places

Question 7

However not all firms grow. Why do some stay small?

Answer 7

constraints on growth: size of market, access to finance, owner objectives and regulation